Bernstein: support of business key to fiscal devolution

Local government must convince business of the case for fiscal devolution if it is to win any concessions from Whitehall, one of the architects of the Greater Manchester devolution deal has said.

Speaking at the Chartered Institute for Public Finance & Accountancy conference yesterday, Manchester City Council chief executive Sir Howard Bernstein said local government needed to develop a “road map” for the devolution of tax raising powers to local areas.

He revealed that members of the Greater Manchester Combined Authority were currently considering whether a case could be made for the local retention of stamp duty, council tax, airport duty tax and the climate change levy.

Greater Manchester has negotiated the most wide ranging devolution deal in the country, including powers over spending on health and social care, transport and, as announced in Wednesday’s Budget, children’s services.

Sir Howard told delegates the next step was fiscal devolution but said the government was not keen as it was influenced by the business community which feared fiscal devolution would mean an increase in taxes.

He said: “We have…got to have a debate with business because I believe one of the reasons governments tend to move away from fiscal devolution is because they’re truly worried by the relationship local authorities have with business…they think the tax burden will increase…it doesn’t have to be like that.”

Sir Howard said England’s major cities needed to work together to address the concerns of groups such as the Confederation of British Industry about fiscal devolution.

In an interview with LGC last week, communities secretary Greg Clark said he was not persuaded fiscal devolution was “necessary or desirable” and urged councils and combined authorities to focus on winning control of funding currently spent in their areas by central government.

Speaking at the same session, Gerard Lyons, economic adviser to London mayor Boris Johnson, said central government and the markets worried that fiscal devolution might “start to institutionalise bad behaviour”. He said the desire for elected mayors seemed to stem from this concern.

“There have been instances globally of cities going bust. It’s very easy to promise the earth if you are only around for four or five years and let a successor worry about the problems.”

He added: “If you start to allow fund raising powers to cities, who stands behind a spendthrift city? Who stands behind a spendthrift region?”

Dr Lyons said Mr Johnson had made the case to government that the capital should retain control of its property taxes including business rates, council tax and stamp duty. The mayor’s argument is that a transfer of these taxes would be supported by a one-off grant back to the state to make it fiscally neutral, he said.

Dr Lyons highlighted that London only kept 7.5% of revenues raised in the city, while other global cities such as New York and Tokyo kept 50% or more.

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